By Sanaa’i Muhammad
Microfinance (MF) is a financial service that offers small loans, savings accounts, insurance and other financial products to marginalized individuals and small businesses that typically lack access to traditional banking services. It was first popularized in the 1980s with bold claims like the transformation of the economies of the Global South. Its proponents claimed that the ‘inclusion’ of these economies and their low-income populations into the global capitalist markets through such financial services would help them engage in income-generating activities, improve their livelihoods and eventually eradicate world poverty. Microfinance ultimately evolved into FinTech or ‘financial technology’, which uses digital platforms to provide financial services to the global poor. Fintech includes Blockchain, Crypto, Digital Payments, Regtech, etc. Prominent names would include Easypaisa, Robinhood, Paypal and Sadapay. MF and fintech were heralded as significant developments that would help democratize and make accessible financial services that were previously only available to a select few.
False Prophet: Muhammad Yunus
Muhammad Yunus, the founder of Grameen Bank and the new face for ‘humane capitalism’, has been the leading proponent of microfinance. After his prominence in 1980s, almost instantaneously he was presented as the messiah, who would lead Bangladesh out of poverty. This, he said, would be done by making capitalism ‘inclusive’ for the poor through the so called financial inclusion. He said that the more people can participate in capitalist markets, the more prosperity they will witness. The underlying assumption here was that ‘capitalism works’ and the only reason Global South’s countries were underdeveloped and impoverished was because these areas did not have access to capitalism and its financial tools. In his book he writes, “If you spend enough time among the poor, you’ll find out that their poverty results from the fact that they cannot retain the fruit of their labor, for the simple reason that they have no control over capital. The poor work for someone else who owns the capital.”
According to Yunus the solution to class exploitation for the exploited therefore was to become a capitalist. There was no need of a revolution or even partial nationalization. This could be done through further privatization of social services by introducing social enterprises and MF programs, the three cheers for capitalism. He went on to receive a Nobel Prize in 2006. However, shortly after the bubble burst as microfinance failed to bring any significant improvements in poverty levels.
Grameen Bank
Let’s begin with Yunus’ own ‘social enterprise’, the Grameen Bank (GB). GB was created in partnership with Citibank India, and was supposed to offer microcredit for the underprivileged segments of the society. This was not a profit motivated but philanthropist venture. Under this ‘philanthropist project’ Grameen Bank sold everything from yogurt to mobile phones (for profit), partnered with a multibillion corporation, Danone, and received aid from USAID, Rockefeller Foundation and World Bank among others. Yunus’ philanthropy project turned him and many corporate CEOs into rich people but somehow failed to enrich those it had set out to ‘empower’. In January 2007, Yunus was invited to head a caretaker government by the Bangladesh’s military establishment, which marked his entry into politics. In 2011, Yunus was removed as the chairman of Grameen Bank on charges of embezzlement.
Humane Capitalism and Social Business
In his book Creating World Without Poverty – Social Business and the Future of Capitalism, Yunus advocated for humane capitalism and social enterprises. A social enterprise would donate part of their profits to the poor and/or would work on social issues that need to be addressed. For instance, a social business which designs and markets health insurance or education policy or even recycling—the issues which in principle should be addressed through public services of the state. Yet Mr. Yunus said that the state had failed to provide these services, so the ‘good hearted investors’ should invest their money into these spheres. Yunus acknowledges that such companies would compete with each other to provide the best services but the competition would not be of exploiting workers but for pride and service! A noble thought but how would companies with contradictory objectives, profit and altruism, be managed, he doesn’t say. Instead of giving a percentage of their profits to charity, companies could just pay living wages and not contribute to creating more poverty. But that doesn’t sound exciting to the advocates of humane capitalism. Hence, calling profit-motive, exploitative investors “social entrepreneurs” has become a trendy move. There’s no need to ask difficult questions like why poverty exists in the first place, or to question the development models that give rise to and rely on the perpetuation of inequality and exploitation. And what about the unsustainable dream of infinite growth or the need for the redistribution of wealth? Nor is there even a passing mention of the blood-stained history of colonization—the centuries of plunder that ravaged these lands. For example, $45 trillion was extracted from India in less than 200 years of British colonial rule, leading to countless famines, including the Bengal famine during World War II. Similarly, Yunus avoids discussing the policies of the World Bank and IMF, which keep entire nations trapped in debt and underdeveloped. Instead, he offers a band-aid solution: micro-loan your way out of the systemic poverty!
Historical Context: Post USSR Privatization
After the breakup of Soviet Union and the fall of Stalinism in Eastern Europe in late 1980s and early 1990s, widespread privatization efforts were made to open up the previously state-controlled sectors in the developing world to private investors. To lay the ground works for future privatizations, liberal economic policies were introduced and profit-centered development projects were pushed via World Bank. Through interventions of IMF’s structural adjustment programs (SAPs), public sector subsidies to small farmers and educational institutes were drastically cut. In Bangladesh’s case, the structural adjustment programs in the 1980s cut subsidies to small farmers which made it impossible for many small landowners to till the land and sustain their lives. To fill this void, microfinance organizations were pushed in with full force. In a region which had suffered a terrible famine only a few years ago, this was nothing less than barbaric. In the 1990s, microfinance gained full steam as the IMF, WB and international aid organizations (Gates Foundation, Rockefeller, USAID, etc.) joined hands to vigorously promote microfinance in the developing world. This was done not with any goodwill but to establish complete Western imperialist monopoly over the microfinance business and further weaken the welfare aspects of the state, all cleverly disguised as poverty alleviation. In reality microfinance and humane capitalism was an attempt to whitewash the disastrous failure of capitalism in Bangladesh and the rest of the developing world. To recover from the devastation of privatization, which had made basic necessities inaccessible for the vast majority, further privatizations were pushed, all so the markets remained open for exploitation and extraction. In the rare instances when governments attempted even nominal resistance (such as in India), they were met with extreme pressure, and a narrative was crafted portraying them as anti-people, dictatorial and oppressive. Nothing was allowed to undermine the foreign investors’ ‘right’ to access global markets, neither the autonomy of those nations, nor the welfare of their people. So, people like Muhammad Yunus came in handy, as brand ambassadors for these new innovations in the mechanisms of imperialist exploitation.
Microfinance: How it Works
Microfinance works by expanding financial markets for imperialist investors by incorporating the poor as clients. This it does under the label of ‘financial inclusion’. It creates exorbitant profits for Western investors while pushing vulnerable people deeper into destitution. Microfinance expands the imperialist-capitalist markets by the financialization of everyday life, transforming even mundane activities into opportunities of profit for shareholders. The ones it simply doesn’t work for are the ordinary people. Milford Bateman, an expert on the issue, notes, “Once private fintech corporations conquer a critical customer base and become oligopolists, or even monopolists, which is the goal of those scalable data-driven business models, the situation radically changes. The poor are no longer the beneficiaries of a particular financial innovation but increasingly its hapless victims.”
Repayments
MF organizations charge high interest rates (typically 20-50 percent) on loans and demand immediate repayments. Even during times of disaster or tragedy, these banks pressurize the borrowers to keep up with repayments, as was seen in the case of Cyclone Sidr, when borrowers were asked to make payments only a week after the cyclone had struck. In one such recent case in Pakistan, Muhammad Masood, a 42-year-old man, committed suicide after loan sharks started threatening his wife. Masood had initially borrowed Rs13,000 through an online app to pay his rent. However, he found himself unable to pay back the loan, the accumulated interest on which had escalated the amount to Rs700,000.
Microfinance banks act similar to IMF, granting aid in the form of repayable loans during emergencies and disasters which have often been induced by capitalism itself, and then profiting off in the name of ‘goodwill’ and ‘social enterprise’. Most borrowers are unable to generate additional incomes from the loans they have acquired, and have to liquidate existing assets, oftentimes selling precious land, cattle and in the extreme cases even their daughters (into prostitution or forced marriages) to payback.
Financialization and Consumerism
The small amounts of money provided by microloans typically support only the ‘survivalist’ entrepreneurial activities, which have little to no lasting positive impact on the broader community’s well-being. They are also often used to satisfy consumption needs rather than investment in microenterprises. Microfinance campaigns are often maliciously followed by intensive advertisement campaigns for consumer goods in the localities often by the same monopolies that own and control the microfinance companies, and so in a rather criminal way the use of microfinance loans is directed towards growing consumerism and imports into the Global South. Consumer goods are introduced into small towns and villages that have no immediate need for them or were unable to afford them earlier. Many found themselves in debt over purchases of lucrative items such as smart phones.
Dreams and Mirages
For every microenterprise that succeeds, a thousand fail. Yet that one exceptional success is often turned into a full-blown PR campaign for capitalism. The ‘successful entrepreneur’ is invited to lavish seminars organized by these banks and companies and given awards for ‘women empowerment’ or ‘entrepreneurship’. This propaganda lures in more unassuming borrowers. It creates the illusion that the dream of financial independence and freedom is only a micro-loan away, and that individuals are responsible for the success or failure in their lives, hence completely disregarding the inequalities and power imbalances inherent in the system which allow only a few to succeed and not many others.
Sustaining Poverty
Many individuals take on loans to survive till their next paycheck. This enables the microfinance banks to deduct the loan repayments directly from the borrower’s subsequent salary. It insulates the microcredit institutions from the risk of default as they can directly access a proportion of the borrower’s wages—sometimes up to 50 percent! So, in addition to the exploitation of the labor power, these institutions have invented another ‘financial tool’ to profit off the working class’s destitution. Microfinance ‘enables’ the workers to stay at their terrible jobs and continue being exploited for an unlivable wage, then forces them to take on loans just to survive, and additionally pay hefty interests, hence enslaving them in a more ruthless manner. Financialization and microfinance, in a typical neoliberal way, addresses the contradiction stemming from the decreasing share of income received by labor: they facilitate the consumption needs of low-income individuals through consumer debt, while simultaneously permitting the continuation of low wages. Yet ‘humane and social’ Western investors in those banks continue to receive hefty dividends at the expense of workers’ wages, that too in the name of ‘poverty alleviation’.
Data Monopolies
Another way these microfinance banks and fintech companies make profit is by leveraging these technologies to capture vast amounts of data and become data monopolies. The data is then sold off to other corporations who spend billions on R&D to study consumer psychology, cultures and angles for advertising certain products. As we saw in the Cambridge Analytica scandal, this data is also sold to political parties and organizations, who manipulate it to push their campaign ads and manipulate election results.
Anti-poverty Programs: Tax Cuts for the Rich
Many of these for-profit microcredit banks operate as NGOs that claim to be working on women’s empowerment or anti-poverty programs. These organizations are often supported by international non-profit foundations such as Gates Foundation and Give Directly. Give Directly, for instance, receives massive tax cuts as it allows users to send charity to third-world countries. However, it charges up to 5-20 percent of that money as fees. Gates Foundation also sends charity through its own fintech organs, and charges fees on it in addition to the tax cuts it gets for its business ventures.
Humane Capitalism?
The fact that extremely predatory lending schemes are disguised as ‘anti-poverty programs’ which make billions for billionaires and get them major tax concessions, makes one reel in disgust. Microfinance is perhaps the best example of the extreme gluttonous and predatory nature of capitalism, and posits a challenge to the advocates of humane capitalism: can such a system ever be humane? A system that not only creates poverty, inequality and destitution but also perpetuates it, enables it and then profits off it! From their non-profit foundations, anti-poverty programs, talks of financial inclusion, Nobel Prizes, entrepreneurship awards and publicity stunts for the one microfinance enterprise that somehow makes it, it is all a fabulously collaborated fiasco and deception, where every tool serves the repatriation of wealth and maximization of profits for the imperialist core.
Brazil: The Case for Publicly Owned Fintech
The only scenario in which microfinance can genuinely benefit the working class is when it is publicly, democratically and locally owned, eliminating the profit motive. A prime example of this has been in Brazil. Governed by President Lula da Silva’s Workers’ Party (PT), Maricá is more receptive to pro-poor initiatives that address poverty rather than the initiatives that predominantly benefit the wealthy. Additionally, Maricá benefits from significant royalties from Brazil’s offshore oil and gas industry, which are allocated to municipalities affected by these activities. The municipality’s community bank, Banco Mumbuca, utilizes a fintech platform to administer a conditional basic income in the local currency, mumbuca. This system circumvents traditional financial intermediaries like Visa, MasterCard and PayPal, and supports the community by ensuring that recipients receive the full amount due to them without fees. By encouraging local payments through mobile phones, Maricá saves municipal funds, which are then reinvested in local enterprise development. This model contrasts sharply with profit-driven, private fintech platforms, as Maricá’s approach prioritizes public benefit and local development over maximizing investor profits.
Conclusion
The promise of microfinance and fintech to alleviate global poverty and democratize financial services has often been overshadowed by their inherent flaws and contradictions. While initially touted as transformative tools for economic inclusion, these programs frequently end up deepening existing inequalities rather than resolving them. The commercialization and privatization of microfinance, driven by profit motives, have led to exploitative practices and the continued perpetuation of poverty. The case of Maricá in Brazil highlights a rare but compelling alternative: a publicly and locally owned model that prioritizes community well-being over private profit. This approach can offer a more equitable and effective solution. Still, within capitalism, there are limits even to that, as it takes us back to the fundamental question of why poverty exists in the first place, or if charity is needed after all. Moreover, without the radical transformation of economy, politics and society, such initiatives inevitably end up running into the pitfalls of reformism.
In any case, humane capitalism is nothing but a miserable and pathetic PR campaign for the real face of capitalism, which is horrible and monstrous, which perpetually drains the lifeblood of the toiling people, and which devours and feeds on the childhoods and youths of child laborers, the dignity of women and the shattered hearts of lovers. It is a behemoth that contaminates and destroys our rivers, forests and foothills, and forces our loved ones to migrate thousands of miles away. It preys on our hopes and dreams, and sells us false prophets with deceitful dreams. These prophets it pays generously, enticing us to change sides; some do, others spend their lives chasing the mirage. The monster needs not a new, charming mask but to be stabbed, dismembered and eliminated. We, as Marxists and revolutionary socialists, see through all false prophets and promises, and refuse to be tricked by them. We demand a world of love and peace. A world free of exploitation and oppression of every form. We demand nothing less than a socialist revolution.
